General
The following discussion and analysis provides information we believe is
relevant to understand our consolidated financial condition and results of
operations. This discussion should be read in conjunction with the consolidated
financial statements and notes to the consolidated financial statements
contained in this report together with our annual report on Form 10-K for the
year ended December 31, 2021.
Cautionary Information Regarding Forward-Looking Statements
Forward-looking statements are made in accordance with safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. These statements are based
on current expectations that involve a number of risks and uncertainties and do
not relate strictly to historical or current facts, but rather to plans and
objectives for future operations. These statements may be identified by words
such as "anticipate," "believe," "continue," "estimate," "expect," "intend,"
"outlook," "plan," "predict," "may," "could," "should," "will" and similar
expressions, as well as statements regarding future operating or financial
performance or guidance, business strategy, environment, key trends and benefits
of actual or planned acquisitions.
Factors that could cause actual results to differ from those expressed or
implied in the forward-looking statements include, but are not limited to, those
discussed in Part I, Item 1A - Risk Factors of our annual report on Form 10-K
for the year ended December 31, 2021, Part II, Item 1A - Risk Factors in this
report, or incorporated by reference. Specifically, we may experience
fluctuations in future operating results due to a number of economic conditions,
including: disruption caused by health epidemics, such as the COVID-19 outbreak;
competition in the ethanol industry and other industries in which we operate;
commodity market risks, including those that may result from weather conditions;
financial market risks; counterparty risks; risks associated with changes to
government policy or regulation, including changes to tax laws; risks related to
acquisition and disposition activities and achieving anticipated results; risks
associated with merchant trading; risks related to our equity method investees
and other factors detailed in reports filed with the SEC. Additional risks
related to Green Plains Partners LP include compliance with commercial
contractual obligations, potential tax consequences related to our investment in
the partnership and risks disclosed in the partnership's SEC filings associated
with the operation of the partnership as a separate, publicly traded entity.
We believe our expectations regarding future events are based on reasonable
assumptions; however, these assumptions may not be accurate or account for all
risks and uncertainties. Consequently, forward-looking statements are not
guaranteed. Actual results may vary materially from those expressed or implied
in our forward-looking statements. In addition, we are not obligated and do not
intend to update our forward-looking statements as a result of new information
unless it is required by applicable securities laws. We caution investors not to
place undue reliance on forward-looking statements, which represent management's
views as of the date of this report or documents incorporated by reference.
Overview
Green Plains is an Iowa corporation founded in June 2004 as a producer of low
carbon fuels and has grown to be one of the leading corn processors in the
world. We continue the transition from a commodity-processing business to a
value-add agricultural technology company focusing on creating diverse,
non-cyclical, higher margin products. In addition, we are currently undergoing a
number of project initiatives to improve margins. Through our Total
Transformation Plan to a value-add agricultural technology company discussed
below, we believe we can further increase margin per gallon by producing
additional value-added ingredients, such as Ultra-High Protein, while expanding
corn oil yields.
In December 2020, we completed the purchase of a majority interest in FQT. The
acquisition capitalizes on the core strengths of each company to develop and
implement proven, value-added agriculture, food and industrial biotechnology
systems and rapidly expand installation and production across Green Plains
facilities, as well as offer these technologies to the biofuels industry.
Additionally, we have taken advantage of opportunities to divest certain assets
in recent years to reallocate capital toward our current growth initiatives. We
are focused on generating stable operating margins through our business segments
and risk management strategy. We own and operate assets throughout the ethanol
value chain: upstream, with grain handling and storage; through our ethanol
production facilities; and downstream, with marketing and distribution services
to mitigate commodity price volatility. Our other businesses leverage our supply
chain, production platform and expertise.
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We formed Green Plains Partners LP, a master limited partnership, to be our
primary downstream storage and logistics provider since its assets are the
principal method of storing and delivering the ethanol we produce. The
partnership completed its initial public offering on July 1, 2015. As of March
31, 2022, we own a 48.9% limited partner interest, a 2.0% general partner
interest and all of the partnership's incentive distribution rights. The public
owns the remaining 49.1% limited partner interest. The partnership is
consolidated in our financial statements.
We group our business activities into the following three operating segments to
manage performance:
?Ethanol Production. Our ethanol production segment includes the production of
ethanol, including industrial-grade alcohol, distillers grains, Ultra-High
Protein and corn oil at 11 ethanol plants in Illinois, Indiana, Iowa, Minnesota,
Nebraska and Tennessee. At capacity, our facilities are capable of processing
approximately 330 million bushels of corn per year and producing approximately
1.0 billion gallons of ethanol, 2.5 million tons of distillers grains and
Ultra-High Protein and 290 million pounds of industrial grade corn oil, making
us one of the largest ethanol producers in North America.
?Agribusiness and Energy Services. Our agribusiness and energy services segment
includes grain procurement, with approximately 27.0 million bushels of grain
storage capacity, and our commodity marketing business, which markets, sells and
distributes ethanol, distillers grains, Ultra-High Protein and corn oil produced
at our ethanol plants. We also market ethanol for a third-party producer as well
as buy and sell ethanol, including industrial-grade alcohol, distillers grains,
Ultra-High Protein, corn oil, grain, natural gas and other commodities in
various markets.
?Partnership. Our master limited partnership provides fuel storage and
transportation services by owning, operating, developing and acquiring ethanol
and fuel storage tanks, terminals, transportation assets and other related
assets and businesses. The partnership's assets include 29 ethanol storage
facilities, four fuel terminal facilities and approximately 2,300 leased
railcars.
As part of our transformation to a value-add agricultural technology company, we
completed our first MSC™ Ultra-High Protein installation our Shenandoah
biorefinery during the first quarter of 2020. Our Wood River plant began
operations in October 2021. Three additional locations are slated to begin
operating by mid-2022, and installation at our remaining biorefineries is
expected over the course of the next several years. Through our value-added
ingredients initiative, we expect to produce Ultra-High Protein, a feed
ingredient with protein concentrations of 50% or greater, increase production of
corn oil as well produce other higher value products, such as post-MSC
distillers grains.
We have also upgraded our York facility to include USP grade alcohol
capabilities. We began pilot scale batch operations at the CST production
facility at our York Innovation Center in the second quarter of 2021, which may
allow for the production of both food and industrial grade dextrose to target
applications in food production, renewable chemicals and synthetic biology. We
announced the Shenandoah biorefinery as the first location to deploy FQT CSTTM
at commercial scale. We also anticipate modifying additional biorefineries to
include FQT CSTTM production capabilities to meet anticipated future customer
demands.
In February and April 2021, as part of our carbon reduction strategy, we have
committed our Nebraska, Iowa and Minnesota plants to the Summit Carbon Solutions
Midwest Carbon Express project to capture and store carbon dioxide produced
through the fermentation process. In total, eight of our biorefineries have
entered into long-term carbon offtake agreements, which will lower greenhouse
gas emissions through the capturing and storing of carbon dioxide at each of the
biorefineries, significantly lowering their carbon intensity. This project is
expected to be completed in 2024.
Our profitability is highly dependent on commodity prices, particularly for
ethanol, industrial alcohol, distillers grains, corn oil, soybean meal, corn,
and natural gas. Since market price fluctuations of these commodities are not
always correlated, our operations may be unprofitable at times. We use a variety
of risk management tools and hedging strategies to monitor price risk exposure
at our ethanol plants and lock in favorable margins or reduce production when
margins are compressed. Our profitability could be significantly impacted by
price movements of the aforementioned commodities, specifically including market
volatility related to corn as a result of current geopolitical events, including
the war in Ukraine.
Recent Developments
New Financing to Replace Existing Working Capital Facilities
On March 25, 2022, Green Plains Finance Company, Green Plains Grain and Green
Plains Trade, all of which are
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wholly owned subsidiaries, together with the company, as guarantor, entered into
a five-year, $350.0 million senior secured sustainability-linked revolving Loan
and Security Agreement (the "Facility") with a group of financial institutions
led by ING Capital LLC ("ING") as Agent and ING, PNC Capital Markets LLC, Fifth
Third Bank, National Association, Bank of America, N.A. and BMO Harris Bank,
N.A., as Joint Lead Arrangers. This transaction refinanced the separate credit
facilities previously held by Green Plains Grain and Green Plains Trade. The
Facility matures on March 25, 2027.
Results of Operations
During the first quarter of 2022, we experienced a weak ethanol margin
environment due to industry overproduction, combined with larger ethanol stocks,
and a surge in COVID variants that hindered driving demand. We maintained an
average utilization rate of approximately 83.1% of capacity, resulting in
ethanol production of 196.3 mmg for the first quarter of 2022, compared with
178.0 mmg, or 71.1% of capacity, for the same quarter last year. The increase in
the average utilization rate was primarily due to nearing the completion of our
plant modernization and upgrade program during the current quarter. Our
operating strategy is to transform our company to a value-add agricultural
technology company. However, in the current environment, we may continue to
exercise operational discretion that results in reductions in production.
Additionally, we may operate at less than our capacity resulting in lower
production rates due to various construction projects. It is possible that
production could be below minimum volume commitments in the future, depending on
various factors that drive each biorefineries variable contribution margin,
including future driving and gasoline demand for the industry. We are currently
producing Ultra-High Protein at two locations and have also deployed FQT MSCTM
Ultra-High Protein process technology at three additional locations, which we
expect to be operational by the middle to last half of 2022. We are striving to
deploy the MSC™ protein technology across our platform to take advantage of the
world's growing demand for protein feed ingredients and low-carbon renewable
corn oil.
U.S. Ethanol Supply and Demand
According to the EIA, domestic ethanol production averaged 1.02 million barrels
per day during the first quarter of 2022, which was 12.5% higher than the 0.91
million barrels per day for the same quarter last year. Refiner and blender
input volume increased 6.1% to 840 thousand barrels per day for the first
quarter of 2022, compared with 792 thousand barrels per day for the same quarter
last year. Gasoline demand increased 0.5 million barrels per day, or 6.3% during
the first quarter of 2022 compared to the prior year. U.S. domestic ethanol
ending stocks increased by approximately 5.4 million barrels compared to the
prior year, or 25.6%, to 26.5 million barrels as of March 31, 2022. As of March
31, 2022, according to Prime the Pump, there were approximately 2,630 retail
stations selling E15 in 31 states, up from 2,555 at the beginning of the year,
and 267 pipeline terminal locations now offering E15 to wholesale customers.
Global Ethanol Supply and Demand
According to the USDA Foreign Agriculture Service, domestic ethanol exports
through February 28, 2022, were approximately 267 mmg, in line with the 266 mmg
for the same period of 2021. Canada was the largest export destination for U.S.
ethanol accounting for 25% of domestic ethanol export volume. India, South
Korea, Brazil and Mexico accounted for 17%, 11%, 8% and 7%, respectively, of
U.S. ethanol exports. We currently estimate that net ethanol exports will range
from 1.3 to 1.5 billion gallons in 2022, based on historical demand from a
variety of countries and certain countries that seek to improve their air
quality and eliminate MTBE from their own fuel supplies.
Legislation and Regulation
We are sensitive to government programs and policies that affect the supply and
demand for ethanol and other fuels, which in turn may impact the volume of
ethanol and other fuels we handle. Over the years, various bills and amendments
have been proposed in the House and Senate, which would eliminate the RFS
entirely, eliminate the corn based ethanol portion of the mandate, and make it
more difficult to sell fuel blends with higher levels of ethanol. We believe it
is unlikely that any of these bills will become law in the current Congress. In
addition, the manner in which the EPA administers the RFS and related
regulations can have a significant impact on the actual amount of ethanol
blended into the domestic fuel supply.
Federal mandates and state-level clean fuel programs supporting the use of
renewable fuels are a significant driver of ethanol demand in the U.S. Ethanol
policies are influenced by concerns for the environment, diversifying the fuel
supply, and reducing the country's dependence on foreign oil. Consumer
acceptance of FFV and higher ethanol blends in non-FFVs may be necessary before
ethanol can achieve further growth in U.S. market share. In addition, expansion
of clean fuel programs in other states, or a national LCFS could increase the
demand for ethanol, depending on how it is structured.
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The RFS sets a floor for biofuels use in the United States. When the RFS was
established in 2010, the required volume of conventional, or corn-based, ethanol
to be blended with gasoline was to increase each year until it reached 15
billion gallons in 2015, which left the EPA to address existing limitations in
both supply and demand. As of this filing, the EPA has proposed reducing the
conventional ethanol RVOs for 2020 and 2021 to reflect lower fuel demand during
the pandemic, and proposed the statutory 15 billion gallons for 2022.
According to the RFS, if mandatory renewable fuel volumes are reduced by at
least 20% for two consecutive years, the EPA is required to modify, or reset,
statutory volumes through 2022, the year through which the statutorily
prescribed volumes run. While conventional ethanol maintained 15 billion
gallons, 2019 was the second consecutive year that the total RVO was more than
20% below the statutory volume levels. Thus, the EPA was expected to initiate a
reset rulemaking, and modify statutory volumes through 2022, and do so based on
the same factors they are to use in setting the RVOs post 2022. These factors
include environmental impact, domestic energy security, expected production,
infrastructure impact, consumer costs, job creation, price of agricultural
commodities, food prices, and rural economic development. However, in late 2019,
the EPA announced it would not be moving forward with a reset rulemaking in
2020. It is unclear when or if the current EPA will propose a reset rulemaking,
though they have stated an intention to propose a post 2022 set rulemaking as
required by law.
Under the RFS, RINs and SREs are important tools impacting supply and demand.
The EPA assigns individual refiners, blenders, and importers the volume of
renewable fuels they are obligated to use in each annual RVO based on their
percentage of total domestic transportation fuel sales. Obligated parties use
RINs to show compliance with the RFS mandated volumes. Ethanol producers assign
RINs to renewable fuels and the RINs are detached when the renewable fuel is
blended with transportation fuel domestically. Market participants can trade the
detached RINs in the open market. The market price of detached RINs affects the
price of ethanol in certain markets and can influence purchasing decisions by
obligated parties. As it relates to SREs, a small refinery is defined as one
that processes fewer than 75,000 barrels of petroleum per day. Small refineries
can petition the EPA for a SRE which, if approved, waives their portion of the
annual RVO requirements. The EPA, through consultation with the DOE and the USDA
can grant a full or partial waiver, or deny it outright within 90 days of
submittal. The EPA granted significantly more of these waivers for the 2016,
2017 and 2018 reporting years than they had in prior years, totaling 790 mmg of
waived requirements for the 2016 compliance year, 1.82 billion gallons for 2017
and 1.43 billion gallons for 2018. In doing so, the EPA effectively reduced the
RFS mandated volumes for those compliance years by those amounts respectively,
and as a result, RIN values declined significantly. In the waning days of the
previous administration, the EPA approved three additional SREs, reversing one
denial from 2018 and granting two from 2019. A total of 88 SREs were granted
under the Trump Administration, totaling 4.3 billion gallons of potential
blending demand erased. The EPA, under the current administration, reversed the
three SREs issued in the final weeks of the previous administration, and in the
RVO rulemaking they proposed denying all pending SREs. There are multiple legal
challenges to how the EPA has handled SREs and RFS rulemakings. On April 22,
2022, the U.S. District Court for D.C. approved a consent decree agreement
between Growth Energy and EPA that requires the agency to finalize the RVO
proposals by no later than June 3, 2022.
The One-Pound Waiver, which was extended in May 2019 to allow E15 to be sold
year-round to all vehicles model year 2001 and newer, was challenged in an
action filed in Federal District Court for the D.C. Circuit. On July 2, 2021,
the Circuit Court vacated the EPA's rule so the future of summertime, defined as
June 1 to September 15, sales of E15 to non-FFVs is uncertain. The Supreme Court
declined to hear a challenge to this ruling. On April 12, 2022, the President
announced that he has directed the EPA to issue an emergency waiver to allow for
the continued sale of E15 during the summer months, and that the temporary
waiver should be extended as long as the gasoline supply emergency lasts. As of
this filing, E15 is sold year-round in 31 states.
In October 2019, the White House directed the USDA and EPA to move forward with
rulemaking to expand access to higher blends of biofuels. This includes funding
for infrastructure, labeling changes and allowing E15 to be sold through E10
infrastructure. The USDA rolled out the Higher Blend Infrastructure Incentive
Program in the summer of 2020, providing competitive grants to fuel terminals
and retailers for installing equipment for dispensing higher blends of ethanol
and biodiesel. In December 2021, the USDA announced they would administer
another infrastructure grant program. Congress is considering legislation that
would provide for an additional $1 billion in USDA grants for biofuel
infrastructure from 2022 to 2031.
To respond to COVID-19 health crisis and attempt to offset the subsequent
economic damage, Congress passed multiple relief measures, most notably the
CARES Act in March 2020, which created and funded multiple programs that have
impacted our industry. The CARES Act also allowed for certain net operating loss
carrybacks, which has allowed us to receive certain tax refunds. In December
2020, Congress passed and then the President signed into law an annual spending
package coupled with another COVID relief bill which included additional funds
for the Secretary of Agriculture to distribute
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to those impacted by the pandemic. The language of the bill specifically
includes biofuels producers as eligible for some of this aid, and in June of
2021, USDA announced a $700.0 million Biofuel Producer Program to distribute
these funds to impacted producers of ethanol, biodiesel and other renewable
fuels, and they provided the specifics for the application process in December
of 2021. Applications were due in February 2022, and the USDA has indicated they
will calculate and distribute payments in the first half of 2022.
Comparability of our Financial Results
There are various events that affect comparability of our operating results from
2022 to 2021, including ethanol production rates and the disposition of our Ord,
Nebraska plant in March 2021.
During the normal course of business, our operating segments do business with
each other. For example, our agribusiness and energy services segment procures
grain and natural gas and sells products, including ethanol, distillers grains
and corn oil of our ethanol production segment. Our partnership segment provides
fuel storage and transportation services for our agribusiness and energy
services segment. These intersegment activities are treated like third-party
transactions with origination, marketing and storage fees charged at estimated
market values. Consequently, these transactions affect segment performance;
however, they do not impact our consolidated results since the revenues and
corresponding costs are eliminated.
Corporate activities include selling, general and administrative expenses,
consisting primarily of compensation, professional fees and overhead costs not
directly related to a specific operating segment and the loss (gain) on sale of
assets. When we evaluate segment performance, we review the following segment
information as well as earnings before interest, income taxes, depreciation and
amortization, or EBITDA, and adjusted EBITDA.
As of March 31, 2022, we, together with our subsidiaries, own a 48.9% limited
partner interest and a 2.0% general partner interest in the partnership and own
all of the partnership's incentive distribution rights, with the remaining 49.1%
limited partner interest owned by public common unitholders. We consolidate the
financial results of the partnership, and record a noncontrolling interest for
the economic interest in the partnership held by the public common unitholders.
Segment Results
The selected operating segment financial information are as follows (in
thousands):
Three Months Ended
?March 31, %
2022 2021 Variance
Revenues:
Ethanol production:
Revenues from external customers $ 637,553 $ 423,722 50.5%
Intersegment revenues
- - *
Total segment revenues 637,553 423,722 50.5
Agribusiness and energy services:
Revenues from external customers 142,877 128,821 10.9
Intersegment revenues 5,835 5,123 13.9
Total segment revenues 148,712 133,944 11.0
Partnership:
Revenues from external customers 1,005 1,097 (8.4)
Intersegment revenues 18,095 19,309 (6.3)
Total segment revenues 19,100 20,406 (6.4)
Revenues including intersegment activity 805,365 578,072 39.3
Intersegment eliminations (23,930) (24,432) (2.1)
Revenues as reported $ 781,435 $ 553,640 41.1%
?
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Three Months Ended
?March 31, %
2022 2021 Variance
Cost of goods sold:
Ethanol production $ 661,560 $ 415,525 59.2%
Agribusiness and energy services 134,439 116,074 15.8
Intersegment eliminations (23,490) (22,366) 5.0
$ 772,509 $ 509,233 51.7%
Three Months Ended
?March 31, %
2022 2021 Variance
Operating income (loss):
Ethanol production (1) $ (51,158) $ (20,320) 151.8%
Agribusiness and energy services 10,408 13,346 (22.0%)
Partnership 11,809 12,871 (8.3)
Intersegment eliminations (440) (2,066) (78.7)
Corporate activities (2) (18,521) 27,516 *
$ (47,902) $ 31,347 *%
(1)Operating loss for ethanol production includes an inventory lower of cost or
net realizable value adjustment of $13.2 million for the three months ended
March 31, 2022.
(2)Corporate activities for the three months ended March 31, 2021 included a
$36.9 million pretax gain on sale of assets.
Three Months Ended
?March 31, %
2022 2021 Variance
Depreciation and amortization:
Ethanol production $ 18,432 $ 18,528 (0.5%)
Agribusiness and energy services 464 607 (23.6)
Partnership 898 887 1.2
Corporate activities 605 659 (8.2)
$ 20,399 $ 20,681 (1.4%)
* Percentage variance not considered meaningful.
We use EBITDA and adjusted EBITDA as segment measures of profitability to
compare the financial performance of our reportable segments and manage those
segments. EBITDA is defined as earnings before interest expense, income tax
expense, depreciation and amortization excluding the amortization of
right-of-use assets and debt issuance costs. Adjusted EBITDA includes
adjustments related to gains or losses on sale of assets and our proportional
share of EBITDA adjustments of our equity method investees. We believe EBITDA
and adjusted EBITDA are useful measures to compare our performance against other
companies. EBITDA and adjusted EBITDA should not be considered an alternative
to, or more meaningful than, net income, which is prepared in accordance with
GAAP. EBITDA and adjusted EBITDA calculations may vary from company to company.
Accordingly, our computation of EBITDA and adjusted EBITDA may not be comparable
with a similarly titled measure of other companies.
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The following table reconciles net loss including noncontrolling interest to
adjusted EBITDA (in thousands):
Three Months Ended
?March 31,
2022 2021
Net loss $ (55,872) $ (1,979)
Interest expense (1) 8,806 31,679
Income tax expense (benefit) (1,153) 1,862
Depreciation and amortization (2) 20,399 20,681
EBITDA (27,820) 52,243
Gain on sale of assets, net - (36,893)
Proportional share of EBITDA adjustments to equity
method investees
45 44
Adjusted EBITDA $ (27,775) $ 15,394(1)Interest expense for the three months ended March 31, 2021 includes a loss
upon extinguishment of convertible notes of $22.1 million.
(2)Excludes the change in operating lease right-of-use assets and amortization
of debt issuance costs.
The following table reconciles segment EBITDA to consolidated adjusted EBITDA
(in thousands):
Three Months Ended
?March 31, %
2022 2021 Variance
Adjusted EBITDA:
Ethanol production (1) $ (32,726) $ (1,789) *%
Agribusiness and energy services 10,723 13,951 (23.1)
Partnership 12,882 13,933 (7.5)
Intersegment eliminations (919) (2,066) (55.5)
Corporate activities (2) (17,780) 28,214 *
EBITDA (27,820) 52,243 *
Gain on sale of assets, net - (36,893) *
Proportional share of EBITDA adjustments
to equity method investees 45 44 2.3
Adjusted EBITDA $ (27,775) $ 15,394 *%
(1)Includes an inventory lower of cost or net realizable value adjustment of
$13.2 million for the three months ended March 31, 2022.
(2)Includes corporate expenses, offset by the gain on sale of assets of $36.9
million for the three months ended March 31, 2021.
* Percentage variance not considered meaningful.
Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31,
2021
Consolidated Results
Consolidated revenues increased $227.8 million for the three months ended March
31, 2022 compared with the same period in 2021 primarily due to higher prices on
ethanol, distillers grains and corn oil and increased trading revenues within
our agribusiness and energy services segment.
Operating loss increased $79.2 million and adjusted EBITDA decreased $43.2
million for the three months ended March 31, 2022 compared with the same period
last year primarily due to decreased margins on ethanol production. Interest
expense decreased $22.9 million for the three months ended March 31, 2022
compared with the same period in 2021 primarily due to the loss upon
extinguishment of convertible notes of $22.1 million for the three months ended
March 31, 2021. Income tax benefit was $1.2 million for the three months ended
March 31, 2022, compared with income tax expense of $1.9 million for the same
period in 2021 primarily due to the release of a valuation allowance against
decreases in certain deferred tax assets for the three months ended March 31,
2022, compared to a decrease of the valuation allowance recorded against certain
deferred tax assets during the three months ended March 31, 2021.
The following discussion provides greater detail about our first quarter segment
performance.
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Ethanol Production Segment
Key operating data for our ethanol production segment is as follows:
Three Months Ended
March 31,
2022 2021 % Variance
Ethanol sold
(thousands of gallons) 196,348 178,000 10.3%
Distillers grains sold
(thousands of equivalent dried tons) 516 465 11.0
Corn oil sold
(thousands of pounds) 59,295 46,563 27.3
Corn consumed
(thousands of bushels) 68,304 62,505 9.3%
Revenues in our ethanol production segment increased $213.8 million for the
three months ended March 31, 2022 compared with the same period in 2021,
primarily due to higher volumes sold and higher prices of ethanol, distillers
grains and corn oil.
Cost of goods sold for our ethanol production segment increased $246.0 million
for the three months ended March 31, 2022 compared with the same period last
year primarily due to higher volumes sold and corn costs. Operating loss
increased $30.8 million and EBITDA decreased $30.9 million for the three months
ended March 31, 2022 compared with the same period in 2021 primarily due to
decreased margins on ethanol production as well as an inventory lower of cost or
net realizable value adjustment of $13.2 million. Depreciation and amortization
expense for the ethanol production segment was $18.4 million for the three
months ended March 31, 2022, compared with $18.5 million for the same period
last year.
Agribusiness and Energy Services Segment
Revenues in our agribusiness and energy services segment increased $14.8 million
while operating income decreased $2.9 million and EBITDA decreased $3.2 million
for the three months ended March 31, 2022 compared with the same period in 2021.
The increase in revenues was primarily due to an increase in ethanol, distillers
grain and corn oil trading activity driven by higher prices. Operating income
and EBITDA decreased primarily as a result of lower trading margins.
Partnership Segment
Revenues generated by our partnership segment decreased $1.3 million for the
three months ended March 31, 2022, compared with the same period for 2021.
Storage and throughput services revenue decreased $0.7 million due to a
reduction in the contracted minimum volume commitment as a result of the sale of
the Ord ethanol plant in the first quarter of 2021. Railcar transportation
services revenue decreased $0.4 million primarily due to a reduction in average
volumetric capacity provided. Trucking and other revenue decreased $0.3 million
primarily as a result of lower affiliate freight volume. Operating income and
EBITDA both decreased $1.1 million for the three months ended March 31, 2022
compared with the same period in 2021.
Intersegment Eliminations
Intersegment eliminations of revenues decreased by $0.5 million for the three
months ended March 31, 2022 compared with the same period in 2021 primarily due
to decreased partnership revenues.
Corporate Activities
Operating income was impacted by a decrease in corporate activities of $46.0
million for the three months ended March 31, 2022 compared to the same period in
2021, primarily due to the $36.9 million gain on sale of assets recorded in the
same period last year as well as increased personnel costs and professional fees
during the three months ended March 31, 2022.
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Income Taxes
We recorded income tax benefit of $1.2 million for the three months ended March
31, 2022, compared with income tax expense of $1.9 million for the same period
in 2021. The decrease in the amount of tax expense recorded for the three months
ended March 31, 2022 was primarily due to a decrease in the valuation allowance
recorded against certain deferred tax assets in the period.
Income (Loss) from Equity Method Investees
Income (loss) from equity method investees decreased $1.0 million for the three
months ended March 31, 2022 compared with the same period last year.
Liquidity and Capital Resources
Our principal sources of liquidity include cash generated from operating
activities and bank credit facilities. We fund our operating expenses and
service debt primarily with operating cash flows. Capital resources for
maintenance and growth expenditures are funded by a variety of sources,
including cash generated from operating activities, borrowings under bank credit
facilities, or the issuance of senior notes or equity. Our ability to access
capital markets for debt financing under reasonable terms depends on numerous
factors, including our past performance, current financial condition, credit
risk profile and market conditions generally. We believe that our ability to
obtain financing based on these factors remains sufficient and provides a solid
foundation to meet our future liquidity and capital resource requirements.
On March 31, 2022, we had $509.2 million in cash and equivalents, excluding
restricted cash. Additionally, we had $95.1 million in restricted cash and $24.9
million in marketable securities at March 31, 2022. We also had $45.0 million
available under our committed revolving credit agreement, subject to
restrictions and other lending conditions. Funds at certain subsidiaries are
generally required for their ongoing operational needs and restricted from
distribution. At March 31, 2022, our subsidiaries had approximately $108.8
million of net assets that were not available to use in the form of dividends,
loans or advances due to restrictions contained in their credit facilities.
Net cash used in operating activities was $162.5 million for the three months
ended March 31, 2022 compared with net cash provided used in operating
activities of $37.0 million for the same period in 2021. Operating activities
compared to the prior year were primarily affected by a higher net loss due to
weak ethanol crush margins as well as increases in inventory of $46.1 million
primarily due to higher ethanol inventory when compared to the same period of
the prior year. Net cash provided by investing activities was $37.9 million for
the three months ended March 31, 2022 compared with net cash provided by
investing activities of $42.3 million for the same period in 2021. Investing
activities compared to the prior year were primarily affected by proceeds from
the sale of marketable securities during the first quarter of 2022, and proceeds
from the sale of assets during the same period in 2021. Net cash provided by
financing activities was $167.9 million for the three months ended March 31,
2022 compared with net cash used in financing activities of $374.3 million for
the same period in 2021, primarily due to proceeds from the issuance of common
stock and debt offerings during 2021.
Additionally, Green Plains Finance Company, Green Plains Trade, Green Plains
Grain and Green Plains Commodity Management use revolving credit facilities to
finance working capital requirements. We frequently draw from and repay these
facilities, which results in significant cash movements reflected on a gross
basis within financing activities as proceeds from and payments on short-term
borrowings.
We incurred capital expenditures of approximately $62.0 million during the three
months ended March 31, 2022, primarily for Ultra High-Protein expansion projects
at various facilities and for various maintenance projects. Capital spending for
the remainder of 2022 is expected to be between $190.0 million and $240.0
million for various projects, including the Ultra High-Protein expansion at our
Obion, Central City and Mount Vernon locations, which are expected to be
financed with cash on hand and by cash provided by operating activities.
Our business is highly sensitive to the price of commodities, particularly for
corn, ethanol, distillers grains, corn oil and natural gas. We use derivative
financial instruments to reduce the market risk associated with fluctuations in
commodity prices. Sudden changes in commodity prices may require cash deposits
with brokers for margin calls or significant liquidity with little advanced
notice to meet margin calls, depending on our open derivative positions. We
continuously monitor our exposure to margin calls and believe we will continue
to maintain adequate liquidity to cover margin calls from our operating results
and borrowings.
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For each calendar quarter commencing with the quarter ended September 30, 2015,
the partnership agreement requires the partnership to distribute all available
cash, as defined, to its partners, including us, within 45 days after the end of
each calendar quarter. Available cash generally means all cash and cash
equivalents on hand at the end of that quarter less cash reserves established by
the general partner, including those for future capital expenditures, future
acquisitions and anticipated future debt service requirements, plus all or any
portion of the cash on hand resulting from working capital borrowings made
subsequent to the end of that quarter.
Our board of directors authorized a share repurchase program of up to $200.0
million of our common stock. Under the program, we may repurchase shares in open
market transactions, privately negotiated transactions, accelerated share
buyback programs, tender offers or by other means. The timing and amount of
repurchase transactions are determined by our management based on market
conditions, share price, legal requirements and other factors. The program may
be suspended, modified or discontinued at any time without prior notice. We did
not repurchase any shares during the first quarter of 2022. To date, we have
repurchased 7,396,936 of common stock for approximately $92.8 million under the
program.
We believe we have sufficient working capital for our existing operations. A
continued sustained period of unprofitable operations, however, may strain our
liquidity. We may sell additional assets or equity or borrow capital to improve
or preserve our liquidity, expand our business or acquire businesses. We cannot
provide assurance that we will be able to secure funding necessary for
additional working capital or these projects at reasonable terms, if at all.
Debt
For additional information related to our debt, see Note 8 - Debt included as
part of the notes to consolidated financial statements and Note 12 - Debt
included as part of the notes to consolidated financial statements included in
our annual report on Form 10-K for the year ended December 31, 2021.
We were in compliance with our debt covenants at March 31, 2022. Based on our
forecasts, we believe we will maintain compliance at each of our subsidiaries
for the next twelve months or have sufficient liquidity available on a
consolidated basis to resolve noncompliance. We cannot provide assurance that
actual results will approximate our forecasts or that we will inject the
necessary capital into a subsidiary to maintain compliance with its respective
covenants. In the event a subsidiary is unable to comply with its debt
covenants, the subsidiary's lenders may determine that an event of default has
occurred, and following notice, the lenders may terminate the commitment and
declare the unpaid balance due and payable.
As outlined in Note 8 - Debt, we use LIBOR as a reference rate for various
credit facilities. The administrator of LIBOR ceased the publication of the one
week and two month LIBOR settings immediately following the LIBOR publication on
December 31, 2021, and the remaining USD LIBOR settings immediately following
the LIBOR publication on June 30, 2023. The U.S. Federal Reserve, in conjunction
with the Alternative Reference Rate Committee, a steering committee comprised of
large U.S. financial institutions, is considering replacing U.S. dollar LIBOR
with a new reference rate, the SOFR, calculated using short-term repurchase
agreements backed by Treasury securities. The potential effect of any such event
on interest expense cannot yet be determined.
Corporate Activities
In March 2021, we issued $230.0 million of 2.25% convertible senior notes due in
2027, or the 2.25% notes. The 2.25% notes bear interest at a rate of 2.25% per
year, payable on March 15 and September 15 of each year, beginning September 15,
2021. The initial conversion rate is 31.6206 shares of the company's common
stock per $1,000 principal amount of 2.25% notes (equivalent to an initial
conversion price of approximately $31.62 per share of the company's common
stock), representing an approximately 37.5% premium over the offering price of
the company's common stock. The conversion rate is subject to adjustment upon
the occurrence of certain events, including but not limited to; the event of a
stock dividend or stock split; the issuance of additional rights, options and
warrants; spinoffs; the event of a cash dividend or distribution; or a tender or
exchange offering. In addition, the company may be obligated to increase the
conversion rate for any conversion that occurs in connection with certain
corporate events, including the company's calling the 2.25% notes for
redemption. We may settle the 2.25% notes in cash, common stock or a combination
of cash and common stock. At March 31, 2022, the outstanding principal balance
on the 2.25% notes was $230.0 million.
In June 2019, we issued $115.0 million of 4.00% convertible senior notes due in
2024, or the 4.00% notes. The 4.00% notes are senior, unsecured obligations,
with interest payable on January 1 and July 1 of each year, beginning January 1,
2020, at a rate of 4.00% per annum. The initial conversion rate will be 64.1540
shares of our common stock per $1,000 principal amount of the 4.00% notes, which
is equivalent to an initial conversion price of approximately $15.59 per share
of
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our common stock. The conversion rate will be subject to adjustment upon the
occurrence of certain events, including but not limited to; the event of a stock
dividend or stock split; the issuance of additional rights, options and
warrants; spinoffs; the event of a cash dividend or distribution; or a tender or
exchange offering. In addition, we may be obligated to increase the conversion
rate for any conversion that occurs in connection with certain corporate events,
including our calling the 4.00% notes for redemption. We may settle the 4.00%
notes in cash, common stock or a combination of cash and common stock.
In May 2021, we entered into a privately negotiated agreement with certain
noteholders of the company's 4.00% notes. Under this agreement, 3,568,705 shares
of our common stock were exchanged for $51.0 million in aggregate principal
amount of the 4.00% notes. Common stock held as treasury shares were exchanged
for the 4.00% notes. At March 31, 2022, the outstanding principal balance on the
4.00% notes was $64.0 million.
In August 2016, we issued $170.0 million of 4.125% convertible senior notes due
in 2022, or 4.125% notes, which are senior, unsecured obligations with interest
payable on March 1 and September 1 of each year. The notes are convertible at
the Holder's option. The initial conversion rate is 35.7143 shares of common
stock per $1,000 of principal which is equal to a conversion price of
approximately $28.00 per share. The conversion rate will be subject to
adjustment upon the occurrence of certain events, including but not limited to;
the event of a stock dividend or stock split; the issuance of additional rights,
options and warrants; spinoffs; the event of a cash dividend or distribution; or
a tender or exchange offering. We anticipate we will settle the 4.125% notes in
a combination of cash and common stock.
In March 2021, concurrent with the issuance of the 2.25% notes, we used
approximately $156.5 million of the net proceeds of the 2.25% notes to
repurchase approximately $135.7 million aggregate principal amount of its 4.125%
notes due 2022, in privately negotiated transactions. At March 31, 2022, the
outstanding principal balance on the 4.125% notes was $34.3 million.
Agribusiness and Energy Services Segment
Green Plains Financing Company has total revolving commitments of $350.0 million
and an accordion feature whereby amounts available under the Facility may be
increased by up to $100.0 million of new lender commitments subject to certain
conditions. Each SOFR rate loan shall bear interest for each day at a rate per
annum equal to the Term SOFR rate for the outstanding period plus a Term SOFR
adjustment and an applicable margin of 2.25% to 2.50%, which is dependent on
undrawn availability under the Facility. Each base rate loan shall bear interest
at a rate per annum equal to the base rate plus the applicable margin of 1.25%
to 1.50%, which is dependent on undrawn availability under the Facility. The
unused portion of the Facility is also subject to a commitment fee of 0.275% to
0.375%, dependent on undrawn availability. At March 31, 2022, the outstanding
principal balance was $305.0 million on the facility and the interest rate was
3.67%.
Green Plains Commodity Management has an uncommitted $40.0 million revolving
credit facility which matures April 30, 2023, to finance margins related to its
hedging programs. Advances are subject to variable interest rates equal to SOFR
plus 1.75%. At March 31, 2022, the outstanding principal balance was
$5.2 million on the facility and the interest rate was 1.83%.
Ethanol Production Segment
On February 9, 2021, Green Plains SPE LLC, a wholly-owned special purpose
subsidiary and parent of Green Plains Obion and Green Plains Mount Vernon issued
$125.0 million of junior secured mezzanine notes due 2026 with BlackRock for the
purchase of all notes issued. At March 31, 2022, the outstanding principal
balance was $125.0 million on the loan and the interest rate was 11.75%.
Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries
of the company, have a $75.0 million delayed draw loan agreement, which matures
on September 1, 2035. At March 31, 2022, the outstanding principal balance was
$75.0 million on the loan and the interest rate was 6.52%.
We also have small equipment financing loans, finance leases on equipment or
facilities, and other forms of debt financing.
Partnership Segment
On July 20, 2021, the partnership entered into an Amended and Restated Credit
Agreement ("Amended Credit Agreement") with funds and accounts managed by
BlackRock and TMI Trust Company as administrative agent creating a $60.0 million
term loan to fund working capital, capital expenditures and other general
partnership purposes. The amended
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term loan matures July 20, 2026. The amended term loan does not require any
principal payments; however, the partnership has the option to prepay $1.5
million per quarter beginning twelve months after the closing date.
Under the terms of the Amended Credit Agreement, BlackRock purchased the
outstanding balance of the existing notes from the previous lenders. Interest on
the term loan is based on 3-month LIBOR plus 8.00%, with a 0% LIBOR floor and is
payable on the 15th day of each March, June, September and December, during the
term, with the first interest payment being September 15, 2021.
On February 11, 2022, the amended term loan was modified to allow Green Plains
Partners and its affiliates to repurchase outstanding notes. On the same day,
the partnership purchased $1.0 million of the outstanding notes from accounts
and funds managed by BlackRock and subsequently retired the notes. As of March
31, 2022, the term loan had a balance of $59.0 million and an interest rate of
8.83%.
Contractual Obligations and Commitments
In addition to debt, our material future obligations include certain lease
agreements and contractual and purchase commitments related to commodities,
storage and transportation. Aggregate minimum lease payments under the operating
lease agreements for future fiscal years as of March 31, 2022 totaled $76.1
million. As of March 31, 2022, we had contracted future purchases of grain,
natural gas, and distillers grains valued at approximately $532.4 million and
future commitments for storage and transportation valued at approximately $31.4
million. Refer to Note 13 - Commitments and Contingencies included in the notes
to consolidated financial statements for more information.
Critical Accounting Policies and Estimates
Key accounting policies, including those relating to revenue recognition,
impairment of long-lived assets and goodwill, derivative financial instruments,
and accounting for income taxes, are impacted significantly by judgments,
assumptions and estimates used in the preparation of the consolidated financial
statements. Information about our critical accounting policies and estimates are
included in our annual report on Form 10-K for the year ended December 31, 2021.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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